Oct. 20 (Bloomberg) -- Microsoft Corp. expects production
costs of handsets using Windows Phone 7 software next year to
drop by more than half from when the platform was introduced.

Cooperation with parts makers including Qualcomm Inc. will
allow phones using Redmond, Washington-based Microsoft’s mobile
operating system to be produced for less than $200, compared
with $400 when the software was released last year, Andy Lees,
head of the Windows Phone division, said in an interview in Hong
Kong today. The actual retail price will be determined by
operators, he said.

Microsoft is competing with Google Inc. and Apple Inc. to
gain a bigger share of the $207 billion mobile-phone market,
where it lags behind the Android and iOS platforms. The first
models using the latest version of Windows Phone 7, called
Mango, have already been shipped in Japan, with devices to be
available in China next year, Lees said.

Models using Mango to be introduced in the next few months
will require as little as $220 to produce, before the cost falls
further in 2012, Lees said.

“We are supporting componentry that will allow us to go
below $200,” he said, referring to handset production costs.

Lower prices will mean less royalty revenue per phone
because Microsoft offers tiered pricing, based on the
manufacturing cost of the handset, he said.

Microsoft works exclusively with Qualcomm to develop chips
that power handsets using its system, allowing it to specify
technical details to ensure devices run more smoothly, the
executive said.

There is currently no plan to work with other semiconductor
makers for Windows Phone 7 devices, he said.

HTC Corp., Samsung Electronics Co. and ZTE Corp. are among
device makers that have already developed handsets using Windows
Phone 7. Nokia Oyj, which has agreed to develop phones with
Microsoft, will outline its plans for Windows phones next week,
Lees said.